Abstract

This paper examines the role played by national-level versus city-specific industry audit experts in mitigating the information asymmetries between borrowers and syndicated loan lenders. Using the framework developed in Ferguson et al. (2003) and Francis et al. (2005), we document that lenders significantly decreases price when borrowers engages auditors who are top-ranked industry leader at both national and city levels. In contrast, we find no such effect for relational lenders. These results suggest that auditor specialist presence substitutes for relational lenders’ information advantage. Similarly, further analyses reveal that non-price terms are more favorable (i.e., longer maturity and lower likelihood of being secured) for borrowers appointing city-specific industry audit experts among non-relational borrowers but not among relational borrowers.

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